In a recent note, Bank of America (BofA) analysts have revealed their top picks for the third quarter, highlighting media giants Walt Disney and Netflix as companies with significant growth potential and the ability to outperform the market. These recommendations underscore the strength and market position of these entertainment powerhouses in an ever-evolving industry.

Netflix, rated as a Buy with a price target of $490, has garnered BofA’s attention as a company “poised to outperform.” The analysts point to four key drivers behind this prediction. First and foremost, they anticipate a crackdown on password sharing, which could fuel subscriber growth and revenue for the streaming giant. By reducing unauthorized account sharing, Netflix could see a boost in its user base and overall profitability.

Another driver of Netflix’s potential success is the introduction of a value-oriented, ad-supported tier. This move is expected to expand the company’s total addressable market and drive higher monetization. By providing an alternative to its traditional subscription model, Netflix can attract a broader range of viewers and advertisers, leading to increased revenue streams and improved financial performance.

Additionally, BofA sees an inflection point in Netflix’s free cash flow, which can enhance the company’s financial position and provide more flexibility for content creation and expansion. Furthermore, the ongoing shift from traditional linear TV to streaming platforms presents a significant opportunity for Netflix to capture new subscribers and solidify its position as a leader in the industry.

Turning to Walt Disney, BofA assigns a Buy rating with a price target of $135, projecting a strong performance in the third quarter. Despite Disney’s underperformance compared to the S&P since November 2021, the analysts are optimistic about the company’s growth prospects.

Several factors contribute to BofA’s positive outlook for Disney. Firstly, recent price increases across Disney’s streaming services, including Disney+, Hulu, and ESPN+, are expected to boost revenue. As more consumers recognize the value of Disney’s content library and exclusive offerings, these price adjustments can contribute to the company’s top-line growth.

The introduction of an ad-supported tier on Disney+ has also garnered attention and strong advertiser demand. By providing a tier with limited ads, Disney opens up new avenues for revenue generation while still delivering a compelling streaming experience to subscribers. This move aligns with the industry trend of exploring ad-supported models, offering Disney the opportunity to capitalize on both subscription and advertising revenue streams.

BofA also acknowledges Disney’s commitment to cost discipline across its direct-to-consumer (DTC) business. By effectively managing expenses while expanding its streaming services, Disney can improve its profitability and drive shareholder value. Furthermore, the enduring popularity of Disney’s theme parks provides an additional lever for growth, as travel resumes and consumer demand for entertainment experiences surges.

The recommendations from BofA analysts highlight the potential of both Walt Disney and Netflix in the rapidly expanding streaming industry and the broader entertainment market. As consumer preferences continue to shift towards digital platforms and on-demand content, these companies are well-positioned to capture the growing demand for streaming services.

Investors seeking opportunities in the third quarter can consider the growth drivers outlined by BofA analysts. With the evolution of streaming and the ongoing transformation of the entertainment landscape, companies like Disney and Netflix have the potential to thrive and deliver strong returns for shareholders.